Plan sponsors, consultants, and investment managers have struggled to effectively benchmark the performance of stable value funds since the inception of synthetic GIC's (“wrap contracts”) in the early 1990s. To measure the performance of stable value funds, the performance of stable value funds have typically been compared to the performance of standard indexes such as the Ryan GIC Indices, the MFR Money Market Index, a U.S. Treasury CMT Index, or a broad bond market index. However, none of these standard indexes used as benchmarks fairly measure the investible universe of asset strategies employed by stable value managers today. More importantly, none of these indexes as benchmarks provide a series of book value returns comparable to those generated by the crediting rate formulae associated with benefit responsive book value contracts like wrap and insurance separate account contracts of a stable value fund.
The crediting rate and its history encapsulate the performance of a stable value fund. Underlying this seemingly simple measure is a fairly complex calculation incorporating investments in book value contracts, as well as market value portfolios of fixed income securities. Furthermore, client-driven factors, such as the history of participant cash flows in and out of the subject fund, can meaningfully impact the performance of stable value funds. This makes the interpretation of a comparison between a traditional one-size-fits-all market value based index and the performance of a book value based stable value fund challenging.
Furthermore, individual stable value funds follow distinct strategies such that one benchmark may not be appropriate to measure the performance of all stable value funds.
Therefore, there is a longstanding frustrated need for performance benchmarks customized to measure the performance of the variety of distinct stable value funds.